The Trump administration says a new plan will cut drug prices. It’s not that simple

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Prescription pills in a yellow bottle over a wooden table

Photo by Roberto Machado Noa/LightRocket via Getty Images

WASHINGTON — When the Trump administration unveiled a new Medicare proposal this week to cut payments to hospitals as part of a drug reimbursement program, Health and Human Services Secretary Tom Price called the plan a “significant step toward fulfilling President Trump’s promise to address rising drug prices.”

It may not be that simple.

The proposal takes aim at a controversial drug discount program, known as the 340B program, which is designed to boost revenues for hospitals that primarily serve low-income patients. The program requires drug makers to offer those hospitals sizable discounts on certain drugs. The hospital can then bill Medicare and other insurers at regular reimbursement rates when patients take the drugs, banking the extra savings to spend elsewhere.

Now, the Trump administration wants Medicare to pay those hospitals much less for those discounted drugs — effectively taking a chunk of the discount for itself. Right now, Medicare pays hospitals about 6 percent more than average sales price for the drug; under the proposal, hospitals in the discount program would get 22.5 percent below average sales price.

What does all this mean for patients?

Because some Medicare beneficiaries pay 20 percent of the reimbursement cost as a co-pay, they’d see their bills get a little lower, too. But seniors with private Medicare Advantage plans wouldn’t see their prices drop, experts said, nor would those with supplemental insurance see much savings.

And the proposal would do nothing to lower the sticker shock most patients experience when they head to the pharmacy.

The change will save Medicare about $900 million, HHS estimated. The administration projected beneficiaries would save about $180 million.

“If you look at the static effect, it has zero effect on pharmaceutical revenues, because they give the discounts anyway. All of the savings get yanked from hospital revenues and given back to Medicare and beneficiaries,” Peter Bach, the director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, told STAT. “It’s not actually about drug prices.”

Bach said the change could help reduce hospitals’ incentives to prescribe more expensive drugs. He pointed out that under the 340B program, pricier drugs net hospitals a proportionally higher amount. If hospitals get less out of the program, they might rely on it less.

“It is about reducing the incentives prescribers have that are currently aligned with high prices,” he said.

Bach, whose research has uncovered abuses in the 340B program, has also been a vocal critic of the high cost of prescription drugs.

Read More: Lawmakers chide Trump for seeking to ‘scale back’ hospital discount drug program.

Advocates for the 340B program are already pushing back against the proposal, criticizing it as a misguided move that will hurt vulnerable populations without doing much to address drug prices.

They point out that the 340B program was intended to help hospitals that provide disproportionately more care for which they’re not compensated by insurers. Congress initiated the discounts so the pharmaceutical industry could shoulder some of that burden to the health care system. Proponents say the hospitals turn around and use the funds for initiatives that are aimed at the most vulnerable populations.

“It’s shortsighted,” said Bill von Oehsen, an attorney with Power Pyles who helped found 340B Health, a group that advocates for providers in the program. “When you look and see how the hospitals are investing their 340B revenues, including their Medicare Part B revenue, they’re paying for services that’s actually saving money for Medicare.”

He pointed to efforts like care management programs and medication adherence initiatives that aren’t reimbursed by the traditional Medicare program, but that have been shown to help improve patient outcomes and in some cases, save money for insurers like Medicare.

Critics of the 340B program, including in the pharmaceutical industry, have argued that the program has expanded to include hospitals that aren’t providing a high volume of “uncompensated” care and that abuse its original intent. Some say the discounts force pharmaceutical companies to drive up drug prices in other markets.

Hospital groups are already pledging to fight the proposal.

“There is no doubt this policy will have devastating consequences for safety net hospitals and thus the vulnerable populations they serve,” Blair Childs, a spokesman for the hospital group Premier said in a statement. “Premier intends to vigorously oppose both these proposals in comments, and we hope that in final rules, these proposals are either dramatically changed or abandoned altogether.”

This article is reproduced with permission from STAT. It was first published on July 14, 2017. Find the original story here.

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